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Corporate Acquisitions of Startups: Why Do They Fail?

Wed, 04/23/2014 - 11:58
Steve Blank

For decades large companies have gone shopping in Silicon Valley for startups. Lately the pressure of continuous disruption has forced them to step up the pace.

More often than not the results of these acquisitions are disappointing.

What can companies learn from others’ failed efforts to integrate startups into large companies? The answer – there are two types of integration strategies, and they depend on where the startup is in its lifecycle.

The Innovation Portfolio

Most large companies manage three types of innovation: process innovation (making existing products incrementally better), continuous innovation (building on the strength of the company’s current business model but creating new elements) and disruptive innovation (creating products or services that did not exist before.)

Companies manage these three types of innovation with an innovation portfolio – they build innovation internally, they buy it or they partner with resources outside their company.

Five Types of Innovation to Buy

If they decide to buy, large companies can:

  1. license/acquire intellectual property
  2. acquire startups for their teams (and discard the product)
  3. buy out another company’s product line for the product
  4. acquire a company for the product and its installed base of users
  5. buy out an entire company for its revenue and profits.

Silicon Valley – a Corporate Innovation Candy Store

Corporate business development and strategic partner executives are flocking to Silicon Valley to find these five types of innovation. In response, venture capital firms like Sequoia and Andreessen/Horowitz are hiring new partners just to work with their portfolio companies and match them to corporations. They are actively organizing annual and quarterly activities to bring the portfolio and Fortune 500 decision makers together– in both large events and one-on-one visits. The goal is to get a corporate investment or an outright acquisition of the startup.

VCs like acquisitions as much as IPOs because the acquiring companies often can rationalize paying large multiples over the current valuation of the startup. For acquirers this math makes sense since they can factor in the potential impact the startup has when combined with their existing business. However, these nosebleed valuations make it even more important in getting the acquired company integrated correctly. The common mistake acquirers make is treating all acquisitions the same.

Is the Potential Acquisition Searching or Executing?

Not all new ventures are at the same stage of maturity. Remember, the definition of a startup is a temporary organization designed to search for a repeatable and scalable business model. (A business model is all the parts of a strategy necessary to deliver a product to a customer and make money from it. These include the product itself, the customer, the distribution channel, revenue model, how to get, keep and grow customers, resources and activities needed to build the business and costs.)

Startups are those companies that are still in the process of searching for a business model. Ventures that are further along and now executing their business model are no longer startups, they are now early-stage companies. Large corporations come to the valley to looking to acquire both startups which are searching for a business model and early-stage companies which are executing.

Companies that acquire startups for their intellectual property, teams or product lines are acquiring startups that are still searching for a business model. If they acquire later stage companies who already have users/customers and/or a predictable revenue stream, they are acquiring companies which are executing.

What gets lost when a large company looks at the rationale for an acquisition (IP, team, product, users) is that startups are run by founders searching for a business model. The founding team is testing for the right combination of product, market, revenue, costs, etc. They do it with a continual customer discovery process, iterating, pivoting and building incremental MVP’s.

This phase of a new venture is chaotic and unpredictable with very few processes, procedures or formal hierarchy. At this stage the paramount goal of the startup management team is to find product/market fit and a business model that can scale before they run out of cash. This search phase is driven by the startup culture which encourages individual initiative and autonomy, and creates a shared esprit de corps that results in the passionate and relentless pursuit of opportunity. This is the antithesis of the process, procedures and rules that make up large companies.

In contrast, early stage companies that have found product/market fit are now in execution mode, scaling their organization and customer base. While they still may share the same passion as a startup, the goal is now scale. Since scale and execution require repeatable processes and procedures, these companies have begun to replace their chaotic early days with org charts, HR manuals, revenue plans, budgets, key performance indicators and other tools that allow measurement and control of a growing business. And as part of their transition to predictable processes, their founders may or may not still be at the helm. Often they have brought in an operating executive as the new CEO.

Predicting Success or Failure of an Acquisition

So what? Who cares whether a potential acquisition is searching or executing?

Ironically, the business development and strategic partner executives who find the startup and negotiate the deal are not the executives who manage the integration or the acquisition. Usually it’s up to the CTO or the operating executive who wanted the innovative technology (and at times with a formal HR integration process) to decide the fate of the startup inside the acquiring company.

It turns out the success of the acquisition depends on whether the acquiring company intends to keep the new venture as a standalone division or integrate and assimilate it into the corporation.

Actually there is a simple heuristic to guide this decision.

If the startup is being acquired for its intellectual property and/or team, the right strategy is to integrate and assimilate it quickly. The rest is just overhead surrounding what is the core value to the acquiring company.

However, if the startup is still in search mode, and you want the product line and users to grow at its current pace or faster, keep the startup as an independent division and appoint the existing CEO as the division head. Given startups in this stage are chaotic, and the speed of innovation depends on preserving a culture that is driven by autonomy and initiative, insulate the acquisition as much as possible from the corporate overhead. Unless you want to stop innovation in your new acquisition dead in its tracks, do not pile on the corporate KPI’s, processes and procedures. Provide the existing CEO with a politically savvy “corporate concierge” to access the acquiring company’s resources to further accelerate growth. (It helps if the acquirer has incentives for its existing employees that tie the new acquisition’s success to those that help them.) The key insight here is that for a startup still searching for a business model, corporate processes and policies will kill innovation and drive the employees responsible for innovation out of the acquiring company before the startup’s optimal value can be realized.

If the acquisition is in execution mode, the right model is to integrate and assimilate it. Combine its emerging corporate KPI’s, process and procedures with those of the acquiring company. Unless it’s the rare founder who secretly loves processes and procedures, transition the existing CEO to a corporate innovation group or an exit.

Lessons Learned

  • Corporate acquirers need to know what they’re buying – is their acquisition searching or executing
  • If the startup is acquired for its IP, talent or revenue, it should be rapidly integrated into the acquirer
  • If the startup is acquired for its products and/or users, preserve its startup culture by keeping it an independent unit
    • Appoint a “corporate concierge” to access the acquiring company’s resources
    • Incentive programs need to tie together the new acquisition’s continued success and the rest of the company
  • Acquirers need a formal integration and on-boarding process
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As Websense Leaves Town, Iboss Network Security Takes Center Stage

Wed, 04/23/2014 - 10:00
Bruce V. Bigelow

When fraternal twins Paul and Peter Martini founded a startup now known as iboss Network Security in San Diego in 2003, another local company was already becoming one of the dominant providers of Web gateway security technology.

For the next decade or so, iboss operated in the background while San Diego’s Websense rose into the middle of Gartner’s “magic quadrant” of industry leaders in specialized cybersecurity, showing both “the ability to execute” and “the completeness of vision.” Today Websense still provides security technology that protects computer networks from cyber attacks and data theft.

At the end of February, though, Websense confirmed that it would move its headquarters to Austin, TX. The decision was made by Vista Equity Partners, the private equity firm that acquired Websense for nearly $1 billion last June. Vista was lured in part by $4.5 million from the state-operated Texas Enterprise Fund and $438,000 in performance-based incentives from the city of Austin.

Now iboss Network Security is emerging as a fast-growing successor with a new generation of Web security technology.

Paul Martini

After recording about $20 million in annual revenue in 2013, iboss sales are now running at a rate of about $20 million a month—and accelerating, CEO Paul Martini said by phone yesterday.

As a privately held company, iboss is not obligated to disclose its sales. In the first quarter that ended March 31, iboss says its sales grew by 400 percent over the same period last year. “We’re blasting right through,” Martini said. “In the first quarter [of 2014], we made more than in the first half of last year.”

By coincidence, the Martini brothers were in the process of moving their company to Austin, TX, last year when they concluded that it just wouldn’t be worth the disruption to their business. While there is no state income tax in Texas, Martini said they found that labor costs were higher in Austin than in San Diego, and commercial office space was significantly more expensive. “Overall, you’re really not saving as much as you might think,” he said.

The decision to stay in San Diego was sealed, he added, after they learned that cross-town rival Websense was laying the groundwork to move its headquarters to Austin. “Websense was the icing on the cake for us,” Martini said.

Since then, iboss has made dozens of new hires, including many Websense employees in San Diego who were unwilling to … Next Page »

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How To Fund a “Fat Startup”

Wed, 04/23/2014 - 07:30
Sramana Mitra

These days, we focus a lot more on lean startups than startups that require capital to get going. The entire industry has moved away from the “fat” startup category. Investors expect that you will have your product launched, customer acquisition model fleshed out fully, and a team in place before Series A.

However, infrastructure software, hardware, networking, chips—they need capital. Even in cloud software, to build complex technology like personalization and analytics requires some investment.

While we steer people mostly along lean startup paths in the 1M/1M program, I have pondered and investigated the question: How do people fund the “fat startups” these days?

I am seeing a few trends:

—You need track record to get VCs to write big checks right away, so, often, it is the serial entrepreneurs who get these opportunities.

—Some VCs incubate such companies with their Entrepreneurs In Residence, who are typically serial entrepreneurs.

For first time entrepreneurs, the options are more limited.

—The most viable option is to bootstrap using services.

—Deep domain knowledge in a certain business may also give you access to capital.

—A coherent, high-powered team that is willing to work for equity and build a prototype, along with a clear vision of product, customer need, and customer acquisition model, may sometimes work as well.

A few examples:

Ash Ashutosh is a serial entrepreneur who worked as an EIR at Greylock, a top venture firm, and once he scoped out the market need, Greylock gave him the money to build his product. In effect, Actifio, Ash’s fat startup, was incubated inside Greylock, the venture firm.

Andres Rodriguez, founder of fat startup Nasuni, has deep domain knowledge in storage and he is a serial entrepreneur with track record. Raising money was based on those two core factors.

Alon Maor, CEO of fat startup Qwilt, demonstrates an interesting use of bridge financing with Series A (typically, the first institutional round of financing) already negotiated. The product was released 20 months after Series A, which means the Series A financing happened without much other than a clear vision of what the product was going to be and feedback from customers that they wanted the product.

Alon says, “In our case, since we are approaching the carrier space, which is a large software-based capital intensive project, the incubation we did was through 15 worldwide carrier references. We had endorsements from those carriers who said they were behind the idea and recognized our approach as the future of the market.”

Alon did something very nifty. He went to Silicon Valley VCs and sold the concept, and learned that they would be willing to fund his Series A based on the proven customer interest. He also put together a high-powered team of 10 people with deep technical expertise ready to join upon funding.

Then, andthis is where the story gets really interesting, he went to a set of angel investors who knew him from prior companies, and raised a seed round as a bridge into the Series A.

Complex? Yes. Smart? Yes. I would say, very smart.

In this case, funding happened because of a combination of factors: domain knowledge, customer interest, VC interest, and evidence of a strong team ready to come on board post-financing.

Austrian entrepreneur Alexander Zache has deep domain knowledge in art auctions. He is a first-time Internet entrepreneur from a family steeped in the arts business. He managed to raise series A financing from VCs in Berlin on a slide-deck that explained the core concepts, including a phenomenally lucrative business model: his company Auctionata takes 20 percent commission from buyers and 20 percent from sellers, competing head-on with Christie’s and Sotheby’s.

Alex says: “Yes, and we have a very credible strategy for bringing that business online. When I look back at that presentation today, I can see that we have executed exactly what we said we would. We have also hit the revenues exactly as we said we would.”

Please note, there are certain VCs who are particularly good at these kinds of investments. Asheem Chandna and Vinod Khosla come to mind in the IT infrastructure space. Chandna’s investment in Delphix is a good example of funding a fat startup based on a concept. Delphix was founded in 2008 by entrepreneur Jedidiah Yueh, who had earlier founded and sold data de-duplication company Avamar to EMC for $165 million. Vinod Khosla is one of the very few VCs who have not abandoned their interest in cleantech, a capital-intensive industry where the lean-startup model has limited applicability.

While the industry is obsessed with lean startups these days, I believe there is tremendous value in understanding how to continue to build fat startups as well, alongside the lean ones.

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Four Ways to Build a Better Ecosystem for Tech Startups in San Diego

Tue, 04/22/2014 - 03:40
Steven Cox

Through all the ups and downs of building TakeLessons over the past eight years, I can say with certainty that San Diego’s ecosystem for tech startups is better now than I’ve ever seen it.

That said, we have reached a crucial juncture. Our entrepreneurial community can either take San Diego to the next level by doubling down on our assets and honing in on issues we need to improve, or accept our reputation as a beautiful city defined primarily by the sun, surf, and coastal lifestyle.

If we choose to build instead of “coasting,” I can see four areas that should be addressed in the near term, to benefit our city’s startup ecosystem:

Change Our Attitude

What we in San Diego need to focus on first and foremost is our attitude. We need to live and breathe a startup mindset. Anything worthwhile is always created twice: First, in our minds; and second, in reality. As members of San Diego’s entrepreneurial community, we must choose whether to focus on the challenges we face, or on actually making it happen by taking advantage of the strengths we have and moving forward, despite our challenges.

It is up to us to make this change first. Inner victories always precede outer victories. Only by being in the right frame of mind will we see the manifestations of our city’s true potential emerge. This is the fundamental key to shaping our reality and our future. By changing our attitude into that of a can-do city, we will begin to change the lens through which we view the world. Only then will we be able to influence the perception of how the rest of the world views San Diego.

Envision our Future

San Diego’s community and tech leaders all want to see our city’s emerging tech scene continue its explosive growth. The key to doing this is to first have a clear vision—we want to make innovation a key political, economic, and social initiative that shapes San Diego’s future.

With a unified voice, we should all strive to forego our egos and surface the best ideas that can help us move forward. In addition to working on our own agendas, there needs to be space for all of us to work on initiatives, narratives, events, and plans that support the greater good of the ecosystem.

Address our Weaknesses

San Diego has numerous challenges, real and perceived. One of the foremost challenges I’ve heard from VCs is the “lack of talent” perception: investors don’t think it is possible to … Next Page »

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Digital Health Event Highlights Innovation, Wireless Clinical Trials

Mon, 04/21/2014 - 16:59
Bruce V. Bigelow

Last summer, a team of researchers at San Diego’s Scripps Translational Science Institute (STSI) began a clinical study called “Wired for Health” to assess whether wireless sensors and related technologies could “bend the curve” on health care spending. At the time, institute director Eric Topol said it would be “one of the first robust, cross-industry studies using multiple mobile medical sensors to determine whether we can lower health care costs and resource consumption through wireless health technology.”

The study followed the appointment of Steven Steinhubl as director of a new digital medicine program at Scripps Health, signaling an expansion beyond the institute’s initial focus on genomics and precision medicine. The significance of Scripps’ move into digital health and wireless clinical studies became manifest last month, when former Qualcomm executive Don Jones became the institute’s first “chief digital officer.”

In the 11 years he spent at Qualcomm (NASDAQ: QCOM), Jones led many of the company’s strategic initiatives in wireless health and has been recognized for his expertise in applied wireless technologies, mobile health, and in creating “network effects” in fitness and healthcare products, apps, and therapies.

Now, he brings that experience and expertise to Scripps. In an e-mail to me Sunday, Jones writes that “Scripps Digital Health has published trials recently about the Zio patch from iRhythm (Francis Collins recently blogged about this trial), GE’s VScan, etc. STSI is performing regulatory trials, validation trials, comparative efficacy trials, and Phase 4 trials, all of which involve connected, digital health technology of one kind or another—some to gather data, some to validate the device/technology, some as part of a series of trials to develop a new product which may include digital technology.”

Jones and Topol are set to talk tomorrow evening about their vision for the future of precision medicine and digital health, and how their work fits into a broader revolution in connected health innovation and the “Internet of things” that is taking place throughout San Diego.

The headliners event, organized by Qualcomm Life and CommNexus, the San Diego nonprofit industry group, includes Rick Valencia, who oversees Qualcomm Life; Resmed (NYSE: RMD) COO Robert Douglas; Kevin Patrick, director of the UC San Diego Center for Wireless and Population Health Systems; and Greg Lucier, the former chairman and CEO of Life Technologies, now part of Thermo Fisher Scientific (NYSE: TMO).

“Eleven years is the longest I’ve stayed with one company and it was a great time to be at Qualcomm and to … Next Page »

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A Big Day for Xconomy: Introducing Elise Craig and Alex Lash

Mon, 04/21/2014 - 12:38
Wade Roush

At a growing media startup like Xconomy, there’s no task more thrilling than welcoming new editors and writers on board. Today is especially exciting, because I’ve got not one but two additions to tell you about.

First, I’m extremely pleased to announce that Elise Craig has joined us as the new Editor of Xconomy San Francisco, taking over that title from yours truly.

Elise’s byline will be familiar to longtime Xconomy readers. Since 2010 she’s written more than 50 informative and entertaining freelance stories for us, on subjects ranging from edtech to robotics to digital health. Now we’ve finally managed to bring her on staff, which means she’ll be able to apply her sophisticated, inquisitive eye to even more Bay Area startup stories.

A graduate of Georgetown University, Elise brings an impressive resumé to Xconomy. She worked a news producer at The Washington Post and a reporting intern at BusinessWeek before entering the UC Berkeley Graduate School of Journalism, where she reported for OaklandNorth.net and earned her Master’s degree in 2010. Since then she’s worked as a researcher/reporter at consumer protection site Fairwarning.org; as a research editor at Wired Magazine; as a freelance writer and editor at Wired, Healthy California, California Lawyer, and Xconomy; and as a researcher for Grantland.

As the editor of most of Elise’s freelance stories, I’ve come to admire and trust her instinct for storytelling, her ability to zero in on the telling details, and her absolute commitment to accuracy. From now on our coverage of the Bay Area innovation scene will be in her capable hands, with an emphasis all things infotech-related.

On the biotech side, I have another huge coup to announce. We’ve hired Alex Lash, a longtime biotech reporter based in San Francisco, as Xconomy’s new National Life Sciences Editor. Biotech industry insiders know Alex as the former biopharma editor of Start-Up, part of a prestigious family of publications at Elsevier that also includes The Pink Sheet and In Vivo.

Alex’s history covering the high-tech world dates back to the first dot-com boom, when he wrote for CNET’s News.com and The Industry Standard, covering subjects such as the Netscape-Microsoft browser wars and the Justice Department’s antitrust suit against Microsoft. He has also written for a variety of publications such as Wired, Business 2.0, Popular Science, SF Weekly, the San Francisco Bay Guardian, Chow, and Architecture.

From his time at Elsevier, and before that, covering biopharma at financial magazine The Deal, Alex brings deep experience writing about biotech giants like Biogen Idec and Celgene, as well as the evolution of venture investing in the life sciences and technologies from gene editing to new Alzheimer’s medicines. While he lives in San Francisco, Alex will lead our life sciences and healthcare coverage across our nine-city network, with lots of help from our excellent deputy national life sciences editor, Ben Fidler.

As for me? I’m taking on a brand-new title at Xconomy, Editor at Large. I’ll still write frequently about companies in the San Francisco Bay Area, and I’ll continue to oversee Xperience, our consumer site. But I’ll now have more freedom to write long-form stories about important examples of high-tech entrepreneurship and innovation across our whole network, and sometimes even outside of it.

A note to PR professionals: If you ever pitched me about San Francisco stories, you can now pitch Elise instead, at ecraig@xconomy.com. If you ever worked with Luke Timmerman on life sciences stories, you can now reach out to Alex instead, at alash@xconomy.com.

Overnight, we’ve tripled our strength here in the San Francisco bureau, and I couldn’t be more excited. I hope you’ll follow Elise and Alex here (and on Twitter at @e_craigxsf and @alexlash) and help us welcome both of them to the family of Xconomy writers and readers.

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Minerva’s Plan to Disrupt Universities: A Talk with CEO Ben Nelson

Fri, 04/18/2014 - 14:41
Wade Roush

Traditional four-year universities have always had to compete for students. They’re vying not only against each other, but against community colleges, the military, online institutions like University of Phoenix, and, in an age of increasing economic pressure on the middle class, the work world. (Some 34 percent of U.S. high school graduates in 2012 chose not to enter college, or could not afford to.)

But now universities have a new and potentially more worrisome rival: Silicon Valley.

I’m not just talking about the companies that are putting lectures online, such as Khan Academy, Coursera, and Udacity. These purveyors of massive open online courses (MOOCs) tend to portray their offerings as supplements to a classical undergraduate education, or as extensions designed for audiences who wouldn’t otherwise have access to university-level instruction. That’s an idea existing schools understand and are pursuing on their own, through efforts such as edX, the joint project at Harvard, MIT, the University of California, Berkeley, the University of Texas, and other schools to publish MOOCs and interactive learning materials.

No, these days universities also confront a much more direct challenge, from venture-backed companies using technology to reinvent the full undergraduate experience—from the structure of classwork to the composition of the faculty, the look and feel of the campus, the standards for evaluating students, and the way the whole package is priced in the market.

The best-funded and most-discussed of these challengers is the Minerva Project, founded three years ago by serial entrepreneur Ben Nelson, the former CEO of photo-sharing startup Snapfish, which was acquired by Hewlett-Packard in 2005 for a reported $300 million. Nelson, 38, has called Minerva a “perfect university” that will trade huge lecture courses for small faculty-led seminars, and physical classrooms for online video exchanges. The for-profit company won $25 million in seed funding from Benchmark in 2012, and three weeks ago it admitted 45 students to its first class; it expects roughly 19 of them to arrive in San Francisco in September for the beginning of their freshman year.

I had a long conversation with Nelson at Minerva’s downtown office on March 28, the same day the company was welcoming its first group of admitted students to San Francisco for a preview of the Minerva experience. Nelson has claimed that Minerva sets “the highest bar of any university in the world,” and he told me the first group of students were “spectacular talents.” Some 58 percent of them are women, and the same proportion, 58 percent, come from outside the United States. Three of the students have already started their own companies, and two hold patents.

When the students come back in September, they’ll be living together in a converted apartment building on Nob Hill. And that is perhaps Minerva’s only concession to the traditional paradigm of the four-year residential college.

The students won’t attend classes, exactly; instead they’ll use their laptops and webcams to log into Minerva’s Web-based platform for virtual seminars. They won’t be graded through papers or tests, but instead by faculty reviewing recordings of seminar interactions to see whether they’re picking up key concepts and habits of mind. They won’t even stay in San Francisco: for their sophomore year the entire class will be transplanted to another world city, such as Mumbai. (The actual locations of Minerva’s second, third, and fourth campuses haven’t yet been announced.)

The big idea at Minerva is that an immersive, four-year undergraduate education is still the best way to prepare the next generation of leaders, but that today’s elite campus-based universities are doing almost everything wrong. In Nelson’s eyes, most U.S. universities value research over teaching. They charge excessive tuition. They waste money on sports programs, classroom and office space, and lavish facilities for students. They exclude top applicants from other countries, unless their parents are likely to become big donors. And perhaps most egregiously, in Nelson’s mind, they charge students for lecture-based knowledge that should be free to everyone, while neglecting the task of building a coherent curriculum or teaching critical thinking skills.

Nelson has all the bravado of the archetypal Silicon Valley CEO—a Mark Zuckerberg, a Jack Dorsey, or a Travis Kalanick—who’s out to disrupt an existing industry and break a few things in the process. Though he’s a product of the Ivy League (he attended the Wharton School of the University of Pennsylvania), he’s dismissive of traditional fixtures of university life such as fraternities and tenure. He has a fondness for grand pronouncements, and he speaks in present tense about plans and programs that have yet to be tested with enrolled students.

And yet: bravado is probably a useful trait when you’re going up against a true behemoth. The U.S. higher education business collects hundreds of billions of dollars a year in tuition and state and federal grant money; has raised prices at a pace far exceeding the rate of inflation; and has been notoriously slow to adapt to new technological and economic realities. It’s clear that Nelson and the initial faculty leaders he has hired—including respected researchers and academicians like Eric Bonabeau, Diane Halpern, Daniel Levitin, and James Sterling—care deeply about the quality of higher education; so deeply, in fact, that they’ve gone outside what they see as a failed system in an effort to rescue it.

“In general, the best way to achieve success is to focus on absolute criteria, but to change the conditions around you,” Nelson says. At Minerva, that means discarding almost everything about traditional college life, except the Socratic ideal of the small group where a faculty questioner forces students to grapple with new ways of thinking. “If a student wants football and Greek life and not doing any work for class, they have every single Ivy League university to choose from. If you don’t want that, you can have Caltech, which is the only university that forces you to work, because they actually issue F’s and they don’t have football. But if you don’t want to live in Pasadena, you have nowhere except Minerva.”

According to Nelson, the whole Minerva experience will be tuned to do one thing: cultivate critical thinking and communication skills in future leaders, “the people who will create or invent or run the major institutions of society” in countries around the world. Nelson acknowledges the experience won’t be right for everyone. “There are a lot of students who want the campus life and the a cappella groups and the performing arts scene. That is not what we provide. Similarly, there are faculty who want to do research and get in front of a lecture hall and regurgitate the same lecture they’ve been giving for 20 years. We have a different model.”

When Minerva started to reveal its plans back in April 2012, observers naturally posed a slew of questions. What kinds of students would Minerva try to attract? How much would they be asked to pay? Who was going to teach them? Why conduct courses online, if the students are physically co-located? What would accrediting bodies have to say about the whole idea?

Today most of those questions have answers, or the beginnings of them. To win accreditation, Minerva has partnered with the Keck Graduate Institute, a Claremont, CA-based collection of biosciences degree programs. (KGI is itself a 1997 offshoot of the Claremont Colleges consortium, which also includes Pomona College, Claremont McKenna College, and Harvey Mudd College.) To run its online seminars, Minerva has developed a new cloud-based video conferencing system that, to hear Nelson describe it, sounds a little like Google Hangouts with a collection of extra tools for discussion and evaluation. Tuition will be set at $10,000, and Minerva has created a separate non-profit organization, the Minerva Institute for Research and Scholarship, to administer loans—but the founding class will attend at no cost.

In a broad-ranging conversation, I asked Nelson to elaborate on these and other matters, including Minerva’s technology, its prospects for an eventual exit or IPO, and its pedagogical model, which founding dean Stephen Kosslyn has called a “scaffolded curriculum” where professors impart key concepts and skills in one context and methodically revisit them in others. I’ve transcribed and slightly condensed our discussion below.

Xperience: You just admitted your first class of students. Who are they? What’s the profile of a Minerva student?

Ben Nelson: They are 45 students that are, to a one, really just spectacular talents. They are, in some regards, like the students you hear about that go to Harvard or Stanford; they are the ones at the top of their high school class. They are not the kind of average student that comes into a university. Not because they are doing PhD-level work in high school—even though some of them are—and not because they have some outrageous GPA—which, of course, most of them do. But because when you look at the totality of their accomplishments, academically and outside of school, and the leadership and initiative they have shown, and then when you analyze their minds—which we do, because we have these cognitive tests and we interview them—they are just off the charts.

X: Okay, they sound pretty stellar. But how do you square that with what you’ve said in the past about making Minerva a place that welcomes students who wouldn’t be admitted to Harvard or Stanford? How can you be elite and democratic at the same time?

BN: This is exactly what we are doing: both at the same time. To give you some perspective, I went to an Ivy League university 20 years ago. I went to Wharton as an undergrad, which is just as hard to get into as Harvard is. I was a Joseph Wharton Scholar, which is the top 7 percent of the incoming class at Wharton. This was at the very top of the top for American higher education. I just spent a week in China, and the students I met in China who were admitted to Minerva, each one of them would be considered not just a Joseph Wharton Scholar but they would be in the top half of the Joseph Wharton group.

But I don’t think any of them got into the top half of the Ivy League—Harvard, Yale, Princeton, Wharton. Maybe a couple of them. There were eight students—eight!—that got admitted into Harvard from all of China three years ago. Penn just released its statistics; it has an incoming class of 2,500 and less than 1 percent came from mainland China. And if you think all those students were admitted on merit, you are wrong. You can’t select the top 27 applicants from China; that’s not a possibility for … Next Page »

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VCs Invest $243M in San Diego Startups in Q1, Tech Drought Continues

Fri, 04/18/2014 - 04:40
Bruce V. Bigelow

[Corrected 4/18/14, 7:40 am See below.] Venture capital firms invested $243 million in 23 deals in the San Diego area during the first quarter that ended in March, according to data from the MoneyTree Report from PricewaterhouseCoopers, the National Venture Capital Association, and Thomson Reuters.

It was a strong upturn in the amount of capital invested, representing a 67 percent increase over the $145.5 million that VCs invested in San Diego startups during the previous quarter, and a 20 percent rise over the $203 million invested during the first quarter of 2013, according to MoneyTree Data.

The deal count remained more or less comparable. There were 24 deals in the previous quarter, and 27 in the same quarter of 2013.

[Corrected total for life sciences] About $178 million—or 73 percent of the total invested in the region during the quarter—went into 13 life sciences companies.

In the single biggest deal of the quarter, San Diego’s Lumena Pharmaceuticals raised $45.5 million from Alta Partners, New Enterprise Associates, Pappas Ventures, RA Capital Management, RiverVest Venture Partners, and Adage Capital Management. The three-year-old company, founded to develop new oral drugs for treating a rare group of metabolic disorders and liver diseases, recently filed for an IPO.

A new San Diego startup called Human Longevity Inc. (HLI) made the list, but without much information. HLI is a genetic services startup founded by the genetic entrepreneur J. Craig Venter, former Celgene executive Robert Hariri, and Peter Diamandis of the X Prize Foundation. Venter told reporters in early March that HLI had raised $70 million in a funding round led by … Next Page »

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First-Quarter Venture Funding at $9.6B in U.S., Highest Since 2001

Fri, 04/18/2014 - 01:00
Bruce V. Bigelow

Right out of the gate, venture capital funding surged nationwide during the first three months of 2014—driven largely by substantial investments in expansion-stage IT and software companies, according to the MoneyTree Report being released today.

Eight of the ten biggest deals involved IT, software, or Web companies based in Northern California. (The top 10 deal list is below.)

VCs invested almost $9.5 billion in U.S. startups during the first quarter—marking the largest amount of venture capital deployed since the second quarter of 2001. It was 12 percent more than the $8.4 billion venture firms invested during the previous quarter, and 57 percent more than the $6 billion that VCs invested during the first quarter of 2013, according to MoneyTree data.

The first-quarter deal count was relatively modest at 951, or down 14 percent from the 1,112 deals in the previous quarter, and only marginally higher than the 916 deals counted in the same quarter of 2013. But the deal count also offered the biggest clue to interpreting the MoneyTree data.

“Software by itself is a relatively capital-efficient category,” according to John Taylor, who helps to produce the MoneyTree Report as director of research at the National Venture Capital Association NVCA). In 2012, for example, the venture industry was making a lot of small investments in early stage software companies. “What we’re now talking about are companies moving from seed to expansion stage rounds,” Taylor said during a phone interview yesterday.

Software got more venture funding than any other sector—just over $4 billion, or more than 42 percent of the entire $9.4 billion venture firms invested during the quarter. That represented a 39 percent increase over the fourth-quarter of 2013, when VCs invested almost $2.9 billion in 409 software deals. The MoneyTree Report counted 414 software deals during the first quarter.

The MoneyTree Report is a quarterly survey of venture activity, prepared by the NVCA and PricewaterhouseCoopers, based on … Next Page »

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With IPO Expectations Reset (Again), Vital Therapies Begins Trading

Thu, 04/17/2014 - 13:48
Bruce V. Bigelow

Shares of San Diego’s Vital Therapies (NASDAQ: VTL) traded slightly above its IPO price this morning, in the company’s first day of trading.

The biotherapeutic company raised $54 million in its initial public offering, after pricing 4.5 million shares last night at $12 per share, for an initial market cap of approximately $253 million. That was below the $13 to $15 range the company had set in a recent regulatory filing.

Vital Therapies, founded in 2003, has developed an artificial liver support system that uses human liver-derived cells to augment the metabolic functions of a patient’s liver, enabling the patient’s own liver to recover or providing a bridge to transplant.

The company’s plans for an IPO were first disclosed in regulatory filings last November, when the company planned to raise about $75 million. But a sharp slowdown in Wall Street’s appetite for biotech IPOs led Vital Therapies to postpone its IPO, and the company had to adjust its expectations. When the company recently revived its IPO plans, the filings show it intended to raise about $63 million.

In February, Vital Therapies raised $12 million from an undisclosed venture investor.

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Edico Genome Aims at Data Bottleneck in Genome Sequencing

Thu, 04/17/2014 - 02:06
Bruce V. Bigelow

With the arrival of next-generation gene sequencing machines like the Illumina (NASDAQ: ILMN) HiSeq X Ten, medicine has been moving to develop new ways of using genomic data to treat patients. Last month, for example, J. Craig Venter unveiled plans to sequence the entire genome of every patient entering the UC San Diego Moores Cancer Center as an initial goal for his latest startup, Human Longevity Inc.

At the same time, though, it’s becoming clear that generating genomic data for thousands of cancer patients involves working with very large numbers—and that means a wave of new opportunities for innovation are emerging as genomics and Big Data come together. One startup moving to catch this wave is Edico Genome, a San Diego startup founded last year to fix a bottleneck in the way the data being generated by the HiSeq X Ten and other next-generation sequencing machines is processed.

Edico has developed a specialized computer processor for ordering the readout of nucleotides—A, C, T, or G—from short segments of DNA generated by next-generation sequencing technology so they align with a reference genome. It’s a process that genomics specialists refer to as “mapping.”

It is a Big Data problem. The human genome consists of roughly 3.2 billion nucleotide base pairs (made of that four-letter alphabet of DNA) that encode between 20,000 and 25,000 genes. Next-generation sequencing technology cuts the DNA molecule into millions of short segments to “read” the sequence and digitize the results. What comes out is a very large data file that can range from 150 gigabytes to more than 320 gigabytes. An average-size, 200-gigabyte data file would be roughly equivalent to 800 big city phone books—from the days when people used their phone books.

But the data file still consists of millions of segments of DNA that must be mapped to a reference genome. Think of throwing 800 telephone books into a paper shredder, and then trying to reassemble the millions of strips to make sense of the information.

Today, companies like Illumina use clusters of computer servers to map these random DNA segments with a reference genome—a process that typically takes about 20 hours, depending on … Next Page »

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HardTech Labs Enrolls 4 in Cross-Border Manufacturing Accelerator

Wed, 04/16/2014 - 11:07
Bruce V. Bigelow

HardTech Labs, a San Diego accelerator program that gives startups access to low-cost manufacturing in Tijuana, has selected four companies to serve as a beta class. The idea is to help the co-founders and mentors identify the skills that are most important to entrepreneurs and to iron out problems.

The cross-border program, announced last month, is a collaborative effort that includes incubators, entrepreneurs, and investors in San Diego, along with manufacturers, innovation experts, and legal and technical consultants in Tijuana. The accelerator is intended to help tech founders take advantage of the low costs and rapid product development processes offered by manufacturers in Baja California—and to boost the regional innovation ecosystems by linking startup communities on both sides of the border.

“We really and truly believe that San Diego should be a tech mecca,” said Derek Footer, a HardTech Labs co-founder who is managing partner of Origo Ventures, a San Diego firm. “We see this as a jobs program for San Diego over the long term.”

The four startups will begin what Footer calls “Class Zero” on May 5. “If you’re a programmer, you always start with zero instead of one,” Footer explained. “Our Class Zero is the class before the real launch of the program.”

The accelerator plans to focus primarily on startups developing consumer products, medical devices, and robotics. Companies selected for the program can remain in the program for as long as a year, depending on their needs and progress, Footer said.

Key pieces of the accelerator include startup mentoring, classes in advanced prototyping, and learning how to tailor a product for manufacturing, Footer said.

The four companies selected for Class Zero are:

Owaves, founded last August in San Diego, is launching a health, fitness, nutrition, and beauty business. The startup has been developing wearable devices and Web-based software to inspire and motivate people to engage in healthy lifestyle activities.

LANpie, a Tijuana startup founded last year, is developing an appliance for monitoring local area networks, using the open source Rasberry Pi, a credit-card sized computer, and raspian operating system software.

CleverPet, a San Diego startup founded by cognitive scientists and behavioral neuroscientists, plans to lift the curtain later this month on a pet learning console—a WiFi-enabled device that rewards pets for solving continuously customized puzzles.

CryoMedix, a San Diego medical device company, uses liquids maintained under slight pressure to attain temperatures as low as -170 C (-310 F) to destroy tissue and nerves. The company says its cryoablation technology offers the potential for improved clinical outcomes over conventional radio frequency ablation for treating hypertension.

HardTech Labs says it will offer $300,000 in loans that can be converted into ownership stakes to each of the Class Zero companies that completes the program and enters production with one of the accelerator’s contract manufacturing partners.

In a statement, Footer says, “Dedicated funding is clearly a cornerstone of a successful acceleration program. Once we commence our full program later this year, entrance and exit funding will be in place to build on the success of our inaugural class.”

HardTech Labs hopes to enroll 10 startups in its first class, which is expected to begin sometime in September.

The organizations that came together to support HardTech Labs include San Diego’s Ansir Innovation Center, FabLabs San Diego, the Co-Merge Workplace, Origo Ventures, and Tijuana’s Ignitus innovation program and MINK Global, a legal and technical consulting firm.

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How I Raised Seed Capital from a Sand Hill Road VC in 24 Hours

Wed, 04/16/2014 - 07:30
Jerry Jao

Much to many entrepreneurs’ chagrin, having an idea is not enough to start a company. Being able to fundraise is just as important as the big idea.

I’ve been very frank in sharing how one of my startup companies failed because I did not have sufficient funding to compete, so I know how long and arduous the fundraising process can be. Most of my entrepreneur friends and I agree that we do not find pitching to investors particularly enjoyable, and at times, it can be wasted effort. But, it remains a necessary evil.

I have only raised seed capital to date and my experiences are unique to what we are building at my company, Retention Science. But after four years, three companies and countless rejections, I did have one swift experience that taught me many valuable lessons about fundraising. I managed to get a “yes” in 24 hours from Mohr Davidow Ventures. Here are five tips for tactics that led to my success this time around.

1) Narrow Your Meeting Hit List

Contrary to popular belief, it’s not wise to pitch to anybody that will take a meeting (though I understand it is hard to say no to meetings early in the process). Your time is just as important as the VC’s and you should only meet with VCs that specialize in your field.

It is also critical to identify the right partner to pitch to within a VC. Every partner has different investment interests, styles and seniority within the firm. Start by targeting the one who is most likely to be interested in your company, as opposed to sending a blanket pitch.

For Retention Science, we listed ourselves on Angel List and received around 25 intro requests, but only took meetings with a select few that made sense for our business. I met with Mohr Davidow Ventures because they have been successful with B2B enterprise companies (InfusionSoft, Rocket Fuel, etc.) and have a known venture partner, Geoffrey Moore, who authored Crossing the Chasm, a respected publication on selling and marketing high-tech products.

2) Don’t Be Contrived

Once you get a meeting, the key to having it go in your favor is to be yourself, which is often easier said than done. You need to relax so you can demonstrate just how knowledgeable you are about the problem you are solving and how excited you are about your solutions.

Investors are trained to see through an entrepreneur’s “smoke and mirrors” and they are good judges of character. This can be intimidating and throw you off. An advisor once recommended I pitch differently in an investor meeting because I look young and my enthusiasm makes me seem desperate. I tried to switch it up a bit and it didn’t feel genuine. During that time, I realized that I only want to partner with an investor who takes me as I am.

When I met Katherine Barr at Mohr Davidow Ventures for the first time, we got along well. I was thorough (and a bit nerdy) about covering the details, and passionate about the company. But I was also quite nervous. I tried to focus on having a genuine conversation instead of giving her a lot of “fluff” in order to impress her. She seemed to appreciate that.

Katherine emailed that night at 10:30 pm asking me to come back the next day to meet the rest of the partners.

3) Carefully Research Potential Investors

Pitching investors is about making a connection and telling a story they can relate to from their own investment experiences. It is not only about the idea; it is about helping the investors to see your vision, size up the market, and, most importantly, foresee a profitable business model. Assuming you already know everything there is about your industry, make sure you thoroughly research everyone you will be speaking to so you can identify ways to connect on a personal level.

After I received an email from Katherine, and subsequently confirmed our meeting time within five minutes (I always wondered if that earned me brownie points or seemed like I was desperately waiting by the phone), I spent the rest of the night researching all of the partners because I did not know exactly which ones I would be meeting. I was up until 3 am reading all of the articles I could find about them, familiarizing myself with their investments, their philosophies, their LinkedIn profiles, and drafting notes and questions.

I ended up meeting four partners total, and since I had done my homework, I modified my pitch a bit to reflect those partners’ investments and professional experiences. It worked.

4) Release Your Control on Timing

Timing is everything in life, and it is the same for fundraising. If you happen to meet with a VC who just had a successful investment with a company that is similar to yours, then you are in luck. But if they just got out of a crappy board meeting, you might not have their full attention and you will see it on their faces. Do a little casual probing before you sit down with them to gauge their mind frame before you launch into your pitch, and adjust as needed.

Also, VCs are very busy and it is difficult to get all of them into one room to agree on making an investment and, often times, that is a main reason decision-making is delayed. I felt incredibly lucky that all of the partners that needed to weigh in on the decision were available to meet with me on such short notice the next day. This is a rare event, and it’s more likely that you’ll have to sit on your hands and wait for the partners to find time to meet and get back to you. Avoid obsessively calling or emailing to check the status. Persistence is good, but it quickly morphs into annoyance.

After I met with all of the partners, Katherine invited me to wait. I expected her to provide feedback and let me know about next steps. Instead, she returned in 20 minutes and told me “they are in.” That is the best feeling a startup founder can ever experience.

5) Follow Up Diligently—You Are Not Done Yet!

This is not rocket science, yet many entrepreneurs drop the ball during closing. Just because a partner verbally committed that they will invest, nothing is final until the papers are signed and money is in the bank.

Make sure you diligently and directly answer all of the requests that might come your way—investors take everything into account. And I bet that they are taking notes on how you are responding to their additional requests, and handling the final steps of the fundraising process. Expect to receive numerous follow-up requests of all types, and respond to them thoroughly, timely and professionally.

Final Thoughts 

As cliché as it sounds, I agree with the analogy that raising money is like getting married. Fundraising is not about just raising funds—it is about raising funds from the right partners. Katherine and I share a similar outlook on work and life, and her immediate support told me that she was the right partner to help me build my company over the long term.

The result? Well, for me, I will always remember the next time I saw Katherine after we officially closed our funding round. I awkwardly extended my hand to give her a handshake, and she said “come on dude, give me a hug.” Now that is a true partnership.

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Scripps Unveils New Drug Development Arm, Signs J&J as First Partner

Tue, 04/15/2014 - 07:30
Bernadette Tansey

Venture capital firms have long nurtured biotechnology startups that make use of discoveries from non-profit research centers—but the roster of such VC firms has been shrinking. To fill the gap in that financial ecosystem, both research institutions and pharmaceutical companies have been trying out new roles—and meeting each other in the middle.

The Scripps Research Institute in La Jolla, CA, has just unveiled an unusual new standalone drug discovery company it has created: Scripps Advance, which has already founded one startup.

Scripps Advance was also designed as a vehicle to support collaborations with pharmaceutical companies looking for promising early stage projects. It has signed its first deal with the Johnson & Johnson Innovation Center in California—a Menlo Park, CA-based branch of the international scouting initiative J&J created to keep its drug pipeline filled.

“Pharma is investing earlier in product development cycles,” says Scott Forrest, vice president of business development at Scripps. “They don’t stand by while an ecosystem dries up.”

Under the collaboration with the J&J unit, the new Scripps initiative will receive upfront funding (the amounts aren’t being disclosed). The J&J organization will also earmark further money to move a selected number of lab discoveries closer to commercialization, Forrest says.

In addition to funding, J&J’s Innovation Center will also provide guidance to lab scientists—possibly even some specific work plans designed to clear up uncertainties and risks that would make a big drug company hesitate to support or license new technology, says Thorsten Melcher, senior director of new ventures and partnerships at the Innovation Center in Menlo Park (pictured above).

The J&J center is a communications and dealmaking hub that can tap the interests of other Johnson & Johnson units, such as its R&D organization and its venture capital subsidiary, Johnson & Johnson Development Corporation, Melcher says. It can arrange for R&D collaborations, mentoring relationships, equity financing deals, and the formation of startups. The California Innovation Center has already formed relationships with other academic institutions in the state, including UC San Francisco and Stanford University.

“New company formation is down, so we feel we need to be more active in the earlier stages,” Melcher says.

The creation of Scripps Advance marks a turning point in Scripps’ method of interacting with pharmaceutical company partners, Forrest says. In the past, Scripps had formed five-year “first rights” collaborations with a single drug company at a time, such as Pfizer and Novartis. That company gained the right to license any technology at the institute, in exchange for financial support of about $100 million to $125 million, Forrest says.

But it was left almost to chance whether the academic lab projects matched the drug company’s interests, Forrest says. The Scripps Research Institute was free to partner up with other pharmaceutical companies on technology that the “first rights” partner had turned down. But once that happened, outside companies could get the impression that the project was “subpar,” he says. It was a form of what the venture investing community sometimes calls “signaling risk.”

“Not everything got snapped up,” Forrest says.

Now, Scripps Advance plans to form … Next Page »

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Office on iPad: Reports of its Demise Have Been Greatly Exaggerated

Mon, 04/14/2014 - 18:41
Doug Winter

The day that iPad users and Microsoft Office suite lovers have been waiting for has finally arrived. Now the fate of dozens of third-party applications like Prezi and SlideShark hang in the balance.

In a break with tradition, Microsoft CEO Satya Nadella announced the release of Office iPad on March 27. Under former CEO Steve Ballmer, Microsoft protected its Windows franchise by first launching software on its own operating system, though Ballmer did eventually make the decision to ship Office for the iPad. With this move, Microsoft has moved Windows beyond its own product domain, and expanded further into the tablet market.

Does this mean that Microsoft is no longer prioritizing its own operating system? Not likely, according to Tab Times contributor Don Reisinger. However, Nadella made it clear that he would like to focus on cloud and mobile capabilities for Windows in the future. Until he has time to dive into these objectives, Nadella is approaching iOS with a new outlook.

Before Ballmer stepped down as CEO, he hinted that Microsoft was already considering rolling out Office for Apple products. Word of this rumor broke in the fall of 2013. It’s taken almost six months for the idea to evolve into a reality, and there’s no telling how long Microsoft had been mulling over the concept. Now, the time has finally come to see Office and the iPad in action.

Contrary to much of the news that you hear coming out of Silicon Valley, it’s a bit premature to compose the eulogy for Office. More than 1 billion people around the world use Microsoft Office, most on a daily basis. As of 2011, approximately 100 million licenses 2010 have been sold, and Office generates nearly a third of Microsoft’s product revenue.

The fact of the matter is that today’s generation of enterprise leaders grew up with Office—it’s in their DNA. People crunch their numbers and tell their stories with Microsoft Office, and professionals at large corporations are going to be using Excel, Word, and PowerPoint until the day they retire. I understand them because enterprise leaders are my customers too.

Many people believe that Microsoft is late to … Next Page »

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Drones, Oculus, WhatsApp & the Future of Communication

Mon, 04/14/2014 - 09:45
Michael Agustin

[Corrected 4/14/14, 6:13 pm. See below.] Facebook is aiming to become a telco. Drones are the towers. Oculus are the phones. WhatsApp is the service.

Twenty-one billion dollars is cheap for a next-generation telco. There is more behind the WhatsApp and Oculus deals than the apparent need to bring teens and gamers under Facebook’s fold. Facebook and Google are in a heated race to become international telcos. Consider the value of a service with the potential to disrupt an aging international telecommunications industry worth well over a trillion dollars. Imagine the subscriber base of AT&T, Verizon, T-Mobile, and NTT DoCoMo combined. Under that lens, WhatsApp was a steal. So, how does one become a telco?

Infrastructure

First you start with infrastructure: drones, fiber, and airships. Investment in infrastructure in one market can lead to an advantageous beachhead when entering larger related markets. Think, for example, about the humble origins of the telco MCI, which provided coast-to-coast relay stations for truckers using CB radios in the 1960s. Today MCI is part of Verizon, the largest mobile carrier in the U.S.

With Google’s balloon-based Project Loon and drone-based Titan Aerospace and Facebook’s acquisition of Ascenta, these Internet companies are targeting regions with the least competition—those without towers or with limited connectivity, such as developing nations and medium-sized cities—as test-beds for next generation technology. [The previous sentence had stated that Facebook acquired Titan.] What happens once these new technologies are perfected and become faster and cheaper than maintaining cable? Similar to Moore’s Law and silicon, we are witness to an exponential performance curve in wireless. Look at the relative speed in which Wi-Fi has progressed in the 2000s. Now imagine a mobile fleet of drones that could be retrofitted or replaced at the speed of a Formula 1 pit stop.

Think of that time when you walked behind a building or drove past part of a highway where the signal goes dead, or you are in the crowd at SXSW and there is just too much traffic for the telcos to handle. Usually, AT&T would drive in extra trucks with cellular towers on top in order to add a few more bars back to your phone’s signal, but that takes months of planning. Imagine a system of drones that could swarm over cities like vultures, reacting in real time and seeking out locations where phones are reporting low signals before customers even notice.

Hardware

So where does Oculus VR fit in? Oculus Rift is the phone. Client hardware such as the Rift, Google Glass, and the Moto 360 is required to run a service. One utility for the Rift is for tele-presence, getting experts in areas where they can’t be at an instant. However, the acquisition of Oculus means more than people in masks … Next Page »

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San Diego Life Sciences Roundup: Celladon, Halozyme, Zogenix, & More

Fri, 04/11/2014 - 18:09
Bruce V. Bigelow

A big drop in biotech stocks set the backdrop for much of the news out of San Diego’s life sciences community this week. The tide rises, and the tide falls. But the surf is forever—at least in San Diego.

—A broad selloff in biotech stocks has prompted widespread concern that the biotech bubble is popping. The Nasdaq Biotech Index slipped after today’s opening, hitting a level that was 21 percent down from the intraday peak set on Feb. 25. For some experts, a 20 percent decline from the most recent peak means the sector is flirting with a bear market. Talk of the biotech bubble bursting has even prompted some gallows humor, exemplified by a video, “Hitler Reacts to Biotech Bubble,” a meme created from the film “Downfall.”

—San Diego’s Celladon Corporation (NASDAQ: CLDN) gained $1.22, or 11.5 percent, closing at $11.87 in regular trading Thursday, after the company said the FDA gave its “breakthrough therapy” designation to Celladon’s gene therapy treatment for patients with advanced heart failure. It is the first time the FDA has given the designation to a gene therapy program, and means the development and review of Celladon’s Mydicar therapy can be expedited, Wiklund said.

—The FDA put Halozyme Therapeutics’ (NASDAQ: HALO) pancreatic cancer drug candidate PEGPH20 on clinical hold. The move came a week after Halozyme said it had voluntarily suspended enrolling patients and dosing of PEGPH20, a pegylated formulation of its human hyaluronidase enzyme (Hylenex). An independent monitoring committee asked the company to suspend the trial as a precautionary measure until scientists can analyze whether PEGPH20 increases the potential blood-clot risks among patients taking the drug.

—Meanwhile, at the American Association for Cancer Research meeting in San Diego this week, Halozyme presented two scientific papers concerning the benefits of PEGPH20. The first showed that treating tumors with PEGPH20 enhances the action of immune-based cancer therapy such as monoclonal antibodies, according to preclinical data. The second presentation, also based on preclinical data, showed that overproduction of hyaluronan in tumor stroma enhances tumor growth, and that PEGPH20 suppresses the growth of hyaluronan-rich tumors.

—San Diego’s Vital Therapies, which is developing an artificial liver for treating acute liver failure, lowered the proposed deal size for … Next Page »

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They Still Call it Telemedicine? Tracking the Evolution of HealthIT.

Fri, 04/11/2014 - 10:01
Gray Hancock

Recently, the Houston Technology Center asked me to join a panel discussion on “The Future of Telemedicine” at NASA’s Johnson Space Center. I was a bit surprised as I’ve never thought of myself as being part of the telemedicine industry. My business partner, Bryan Haardt, and I last year co-founded Decisio Health to sell software that creates a patient dashboard designed to give care-givers increased situational awareness when treating patients. In developing our product and pitching investors over the past year, “telemedicine” is not a term either of us has used to describe Decisio.

But Tim Budzik, the managing director of the technology center’s JSC campus and event host, insisted that I and Decisio were a perfect fit for the discussion, which further confused me. It did start me thinking however, on just what is “telemedicine” and could my “hip” new startup be a telemedicine company?

For the panel, we were directed to discuss “the future of telemedicine,” which struck me as funny since, to me, the concept is something of the past. To me, telemedicine conjures up a vision of a video conference between a doctor in a stuffy corporate board room and a patient somewhere remote and inaccessible. The term “telemedicine” seems quaint and a touch archaic, like a technology from the ’90s and early 2000s that came and went, like the PDA or AOL. To prepare for the panel discussion, I tried to reconcile this picture in my head with the technologies I am now seeing being developed in what I tend to think of as healthcare IT.

We are now in a world where companies like 2nd.MD can put patients in contact with an expert physician in whatever particular disease they have and setup a consultation in a matter of minutes, on a cell phone, a tablet, or a laptop—all from the comfort of their home. At MD Anderson Cancer Center, an Oncology Expert Advisor is being developed using IBM’s super-computer Watson, which is sifting through millions of data points, in order to inform patients of exactly what their best treatment options are for their specific genotype of cancer. So where does telemedicine fit into this landscape?

I realized that all of these technologies derive, in part, from “telemedicine,” a catch-all moniker that served as the foundation for current innovations like our dashboard. In addition to the video-conferencing, practitioners and policy-makers were tackling issues that are relevant to our industry today. Questions like, How does reimbursement work when the patient and doctor never actually meet? What about liability, and how does the FDA fit into all this?

Some of these answers are still evolving, … Next Page »

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Celladon Gets FDA’s “Breakthrough Therapy” Status for Gene Therapy

Thu, 04/10/2014 - 09:30
Bruce V. Bigelow

[Corrected 4/10/14, 12:25 pm. See below.] The FDA has granted its “breakthrough therapy” designation for a gene therapy treatment in mid-stage development by San Diego’s Celladon (NASDAQ: CLDN), for patients with advanced heart failure.

The FDA notified the company in a letter sent by fax Wednesday from the Office of Cellular, Tissue and Gene Therapies, according to Fredrik Wiklund, Celladon’s vice president for corporate development and investor relations. It is the first time the FDA has given the designation to a gene therapy program, and means the development and review of Celladon’s Mydicar therapy can be expedited, Wiklund said.

Celladon sought the designation based on a long-term, follow-up study of Cupid 1, a mid-stage clinical trial that enrolled 39 patients with severe heart failure. Patients either got a placebo or a low, mid, or high dose of Mydicar through cardiac catheterization. Results from the follow-up study, released in November, confirmed initial findings that showed a dramatic, 88 percent reduction in heart failure-related hospitalizations among patients who received the highest dose of the gene therapy treatment.

Celladon Illustration of Gene Therapy Treatment

After three years, the patients who got the highest dose of Mydicar still showed an 82 percent reduction in episodes of worsening heart failure and hospitalizations.

“That’s what really crystallized the strength of the data,” Celladon CEO Krisztina Zsebo said Wednesday. The safety data for Mydicar also was “superb,” and shows no drug-related toxicities, Zsebo added.

The high-dose Mydicar patients also showed an improved survival rate throughout the three-year follow-up study. Heart failure represents a large, unmet need, and the mortality rate is roughly 50 percent within five years of the initial diagnosis of heart failure, according to the company.

A second clinical trial that is intended to confirm and expand on the results of Cupid 1 began in February, after enrolling 250 patients. “For Europe, this is a pivotal study,” Zsebo said. “For the U.S., it’s still to be determined whether we need to do a phase 3 trial or not.”

Celladon’s gene therapy is intended to boost … Next Page »

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Venture-Backed IPOs & Late-Stage Investments Surged in Q1

Thu, 04/10/2014 - 09:01
Curt Woodward

Venture capitalists saw the public markets awaken in the first quarter, and they’re betting the trend will continue.

A new report from New York-based venture capital research firm CB Insights counts 35 venture-backed IPOs through the end of March, more than any single quarter since the fall of 2000. Mergers and acquisitions were also strong, with 174 deals tallied in the first quarter.

In response, investors have been pouring money into the next wave of mature companies that might make for a strong payout.

Venture investments in the first quarter were just short of $10 billion, the highest level for VC funding since the second quarter of 2001, CB Insights reports.

Late-stage deals with big price tags were the main driver, led by the $900 million Series F investment in Cloudera and $280 million Series D round for Tango.

Overall, Series D and later financings represented a whopping 47 percent of all the U.S. venture dollars raised last quarter, a much bigger share than we’ve seen for the past year at least.

The first quarter also saw more companies cross the threshold of raising money at a reported $1 billion or higher valuation, with 11 such deals reported. That equals the number of first-time billion-dollar valuations recorded by CB Insights all of last year.

“Yes, the market is frothy,” the firm said.

Things stayed pretty close to the script in regional competition for venture deals. California leads the way, of course, with New York and Massachusetts jockeying for the No. 2 position nationally.

Texas rose to a five-quarter high in CB’s report by capturing 6 percent of the venture dollars invested nationally last quarter. Washington state’s venture funding share, meanwhile, fell after an outperforming fourth quarter.

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